Ratan Tata's investment in Xiaomi is likely to yield healthy returns

Rata Tata’s investment in smartphone maker Xiaomi is likely to yield healthy returns as the Chinese firm heads for multi-billion-dollar maiden offering.  In April 2015, the former head of Tata group had picked stake in the fast-growing–yet little-known beyond urban centres–smartphone company in his personal capacity. While the quantum or value of the transaction was kept secret then, Xiaomi’s offer document reveals Tata had picked 0.0024 per cent stake (40,588 shares). The stake is held by RNT Associates International Pte.

Xiaomi’s initial public offering (IPO) is touted to value India’s largest smartphone maker in excess of $100 billion. At these valuations, Tata’s stake will be valued at around $240 million (Rs 16.3 billion). In 2015, when the Chairman Emeritus of Tata Sons had picked up the stake, Xiaomi was valued at $45 billion. Sources say Tata had picked up the stake for $100 million (Rs 6.8 billion at then dollar-rupee exchange rate of 63.42). At valuations of $100 billion, the value of Tata’s Xiaomi stake has increased 2.2 times in dollar terms and 2.4 times in domestic currency terms in just 26 months.

Both RNT Associates and Xiaomi refused to comment for the story. Xiaomi filed its prospectus with the Hong Kong regulator in May. Investment bankers handling the IPO were eyeing valuations of $100 billion. However, reports suggest the valuation expectations have been brought down to $70 billion following a $1-billion quarterly loss posted by the Beijing-based company for the March quarter.

A few years ago, Xiaomi was pegged as world’s largest unicorn with valuations more than that of taxi aggregator Uber. 

In the December 2017 quarter, Xiaomi piped Korea giant Samsung to become India’s largest smartphone company in terms of units shipped. The company had a market share of 26.8 per cent, while number two-ranked Samsung had a market share of 24.2 per cent. Vivo, the third biggest in terms of shipment, had a market share of only 6.5 per cent.

Xiaomi phones have gained popularity in India as they pack powerful hardware at a low cost. In its home market, however, Xiaomi was the fourth largest in terms of units shipped for the December 2017 quarter, as per information provided in the prospectus. Huawei is the largest phonemaker with 21.3 per cent share, with Oppo (17.5 per cent market share), Vivo (16.5 per cent), Xiaomi (13.9%) and Apple (12.9%) vying for the next slot.

Rewarding investment in Xiaomi could have prompted Tata to bet on another Chinese firm. According to reports, RNT Associates recently invested $150 million in Alibaba-affiliate Ant Financial in its latest round of funding to raise $14 billion.